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Can Investments in Emerging Markets Reduce Investing Risks?

Posted on Posted in Emerging Markets

Typically, any savvy investor will do everything he/she can to keep their investment risks to a minimum. Although strategies for keeping investment risks low vary depending on the type of portfolio an investor maintains, one thing is consistent; reducing risk plays in important role in making a decision whether to invest or not. Consider this: an investor who doesn’t identify and manage risk, is simply throwing money into the unknown.

An investor who doesn’t identify and manage risk, is simply throwing money into the unknown.

If you do your research, practice good due diligence and understand your own personal risk factors for investing, then you can significantly reduce your exposure to unnecessary risks.

Now, to be completely truthful, ALL investments pose some degree of risk. Whether it be an investment in real estate, gold investments, mutual funds, stocks or bonds, investors must come to the realization that all investing opportunities come with different levels of risk. Therefore, it becomes the responsibility of each individual investor to calculate their threshold for risk and invest accordingly. For the most part, the investments I listed above come with known risk and a large enough market to understand the overall growth rates to determine risk versus reward. Generally speaking mutual funds tend to perform modestly well each year and therefore the investment risk is perceived as minimal. Although real estate investments are subject to some volatility, generally speaking housing prices consistently rise. Stock markets in developed nations are repeatedly subjected to economic and political influence, and therefore demand constant industry analysis to understand the potential for growth in the future.

But what about emerging markets? Can their investment options help reduce risks? The answer to that depends entirely on your definition of investment risk. In the coming years, emerging markets will account for over 70% of world growth. 40% of that growth is based entirely on the performances of economic giants like China and India. Given this strength, it doesn’t sound like a very risky market, provided you are able to find the right investment vehicle/s.

If you wish to pursue investments in emerging markets, look closely to identify investment opportunities that are well-established and are a part of an emerging region’s main growth industries; like shipping in Hong Kong, or gold and diamonds from South Africa and Russia. This will provide portfolio stability for financial/economic challenges in the future, and will work to reduce a portfolio’s exposure to unnecessary risk.

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